Advantages of Mutual Funds

Diversification:  Mutual funds help reduce overall investment risk. A mutual fund invests in different companies and across different asset classes like equity shares, bonds, futures etc. So even when a share price of a company goes down it would be compensated by the price raise in the other company. 

High Liquidity: It’s fairly easy to buy a mutual fund unit and sell it. In case of closed ended funds the shares need to be sold on an exchange similar to equity shares whereas open ended mutual fund units need to be sold back to the mutual fund company. In both the types of mutual funds you can sell your units as and when required and with a slight difference (or at same price) of market price.

Minimum Investment requirement: All most all mutual funds are accessible to retail and common investors. The minimum investment is usually Rs 500, which is affordable by any investor.

Wide variety of funds:  Mutual funds industry is growing up at a faster pace. Today we have different types of mutual funds to suit wide range of investors. An investor with high risk capability can choose an equity fund and who doesn’t want to take more risks can go for a bond fund (or gilt fund). Balanced funds are also available which invest across different asset classes. Investors who have knowledge about a particular sector can go for sector funds like ‘Natural Resources fund’, ‘Energy Funds’ etc. 

Low transaction costs:  The cost of buying and selling of securities is less for a mutual fund compared to an individual investor. This is because dealers and brokers offer the services at lower cost as fund houses to transactions in large quantities.

Regulation:  Mutual funds are regulated by SEBI. Actually mutual funds entered India in late 20th Century. SEBI took the best rules, regulations and policies from the European world and the US and framed a good set. There are very less chances of fraud.

Management by Experts:  A fund is managed by a Fund manger and analysts and Product Managers help him. These are highly qualified professionals with more experience in the finance industry who definitely have more knowledge than common investors. A fund manager takes decisions on when and what type of security should be bought and issue instructions to trade.
 

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June 27, 2009 | Filed Under Mutual Funds 

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